Here is my thinking:
All I want is to watch a movie once (while I'm on a plane, or somewhere on the road), a movie I haven't seen before, and I'm not even sure I will like. Therefore, I'm not willing to wait a whole day (especially while not being able to use my computer for anything else) for this whole process. It's just not worth it. Plus, I may want to load multiple movies ahead of my trip.
On the other hand, I want to enjoy a high enough quality. After all, I just bought a device that's supposed to kick ass in that area. I want at least some bang for my buck.
So, having the above two constraints in mind, I gave this a shot, and here is what I found. With "High", it started out very slow and it didn't look like the size is going to be cut down enough. I'm looking at a 29G MKV of a 2h:35m movie. If I'm going to have a couple of those, they are going to need to be compressed a bit better.
So, I went with Normal (1920, of course), checked "Web" and also that 8x8 box in advanced (as someone said that's a worthy thing that iPad 3 can handle, and iPad 2 can't). I used 3 of my 4 cores (I didn't want to risk the machine locking up and crashing). It took 2 hours and produced a 3.7G file. That to me is quite reasonable.
The quality looked pretty good on my iPad 3. I'd definitely call it "high def": it's better than iPad 2, better than a DVD, just not the same as BD, of course. As long as you are not "pixel peeping" you can sit back and enjoy, and not find yourself wishing.
Now, having said that, I'm still looking for anything I could improve in my settings, but still: I'm not interested in anything that takes (a lot) more than twice the length of the movie to get done, and I'm not interested in file-sizes greater than 5-7G or so (especially not for movies less than 3 hours long).
In short: what could I do to get to some sweet spot between "Normal" and "High"?
Thank you!